[Opinion] E-Commerce Vouchers no longer eligible for GST Input Tax Credit

Shivam Sharma & Akhil Aggarwal – [2023] 148 taxmann.com 194 (Article)

Introduction

In the recent decision by the Appellate Authority for the Advance Rulings (AAAR) in case of Myntra Designs (P.) Ltd., In re [2022] 145 taxmann.com 327/[2023] 95 GST 641/69 GSTL 197 (AAAR – Kar.) (An E-Commerce Platform providing variety of Clothes), the authority upholding the decision of the Authority of Advance Ruling (AAR) in which it was held that the Input tax credit is not allowable for Purchase of Vouchers from the third parties by Myntra wherein the same vouchers were provided to its Customer against the loyalty points earned by them while shopping from Myntra.

Brief Facts of the Case

The Appellant owns an e-commerce portal www.myntra.com and is a major Indian fashion e-commerce company. The Appellant is engaged in the business of selling of fashion and lifestyle products through the said e-commerce portal. In order to enhance their business, the Appellant proposes to run a loyalty programme where loyalty points will be awarded on the basis of purchases made by the customer on its e-commerce platform.

The participation in the said program will be based on meeting the pre-defined eligibility criteria and subject to acceptance of the terms and conditions by the customer. The Appellant through its portal, would make the vouchers and subscription packages available to those customers who wish to redeem the loyalty points earned / accumulated.

Question of the Ruling

The Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following question:

“Whether the Applicant would be eligible to avail the input tax credit, in terms of Section 16 of the CGST Act, 2017 on the vouchers and subscription packages procured by the Applicant from third party vendors that are made available to the eligible customers participating in the loyalty program against the loyalty points earned/ accumulated by the said customers?”

Decision of the Authority for Advance Ruling (AAR)

The AAR vide its order in Myntra Designs (P.) Ltd., In re [2022] 143 taxmann.com 203 (AAR – Kar.) gave the following ruling in respect of the above questions:

“The applicant is not eligible to avail input tax credit, in terms of Section 16 of the CGST Act 2017, on the vouchers and subscription packages procured by the applicant from third party vendors that are “made available to the eligible customers participating in the loyalty program against the loyalty points earned / accumulated by the said customers, as the input tax credit is not available in terms of Section 17(5)(h) of the CGST Act, 2017”.

Submissions of the Appellant before the Appellate Authority (AAAR)

Aggrieved from the decision of the AAR, the appellant preferred an appeal before the AAAR by giving the following submissions of the case:

• • It is clear from the provisions of section 16 that ITC of tax paid on goods or services or both, used or intended to be used in the course or furtherance of business, is available under Section 16(1) of the CGST Act; that irrespective of the nature of vouchers and subscription packages that will be procured by the Appellant on payment of tax, ITC of such tax paid is available under Section 16(1) of the Act;
    Reliance was placed by the appellant on Bombay High Court decision in the case of Coca Cola India (P.) Ltd. v. CCE [2009] 22 STT 130/15 STR 657 wherein it was held that the phrase “activities relating to business” are words of wide import and can cover all the activities of a business.
  • The Appellant submitted that once vouchers and subscription packages have been classified as services at the supplier’s end, the same cannot be reclassified as ‘goods’ at the Appellant’s end as has erroneously been done by the AAR in the impugned ruling; that the suppliers have classified the vouchers and subscription packages as ‘services’ under H S Code 9983 as “other professional, technical and business services”. Hence section 17(5)(h) of CGST Act not applicable as the same applies to the “Goods” not to the “Services”
  • They submitted that the vouchers and subscription packages would be provided only to eligible customers on redemption of loyalty points earned/accumulated i.e. under a contractual obligation; that the vouchers and subscription packages provided by the Appellant to its customers is not provided ‘free of cost’; that although consideration is not explicitly mentioned, the consideration would be already accounted for in the commission earned charged from the sellers as determined by the Appellant and on which applicable GST would be discharged;
    Reliance was placed on the Delhi Court decision in CST v. Prem Nath Motors 1978 SCC Online Delhi 67 where it was held that irrespective of the transfer of property in goods, no tax could be levied where part or parts were replaced under warranty and no consideration was separately specified as the same was already included in the price determined and paid by the customer at the time of sale of the vehicle.
  • The illustrative list of the Goods and Services that can be procured on redemption of codes/e-vouchers are as follows:

(a) Coupon for a limited period subscription to an Over the Top (“OTT”) platform
(b) Coupon for a limited period premium subscription to an online dating platform
(c) Coupon for a discount on purchase of confectionery and bakery goods from the brands platform
(d) Coupon for a discount on purchase of fast food from a fast-food delivery brand

• • That the Karnataka High Court in the decision in the Premier Sales Promotion (P.) Ltd. v. Union of India [2023] 147 taxmann.com 85 has held that vouchers cannot be considered as ‘goods’; that the above judgment was delivered after the conclusion of the personal hearing and is being placed on record as it has direct relevance to the case at hand; that in view of the above judgment, the question of classifying the vouchers as ‘gift’, would not arise as vouchers cannot be regarded as ‘goods’ and the bar under Section 17(5)(h) of the CGST Act only applies to ‘goods’.

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